17 hours ago | November 23rd, 2014 15:32:34 GMT

China ready to cut interest rates again – RTRS

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China is worried about deflation and ready to cut rates and loosen lending restrictions, according to sources cited by Reuters.

The story is a very good reason to buy the Australian dollar or other commodity currencies to start the week.

“Top leaders have changed their views,” said a senior economist at a government think-tank involved in internal policy discussions.

The economist, who declined to be named, said the People’s Bank of China had shifted its focus toward broad-based stimulus and were open to more rate cuts as well as a cut to the banking industry’s reserve requirement ratio (RRR), which effectively restricts the amount of capital available to fund loans.

China cut the RRR for some banks this year but has not announced a banking-wide reduction in the ratio since May 2012.

“Further interest rate cuts should be in the pipeline as we have entered into a rate-cut cycle and RRR cuts are also likely,” the think-tank’s economist said.

The also highlight that local governments are struggling to manage high debt burdens, which is the principle worry of most China bears.

On Friday, I warned that almost everyone was missing the point on the Chinese rate cut and what mattered not was the actual action but whether or not it was the beginning of an easing cycle. The signals are still mixed but this is a big vote in favor of more easing.

PBOC Zhou

PBOC Governor Zhou

20 hours ago | November 23rd, 2014 12:53:45 GMT

Millions in the UK only days away from the breadline in the event of a sudden loss of income

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As if disappointing data and concerns over the Eurozone, and elsewhere, haven’t been enough to create a feeling amongst those living in the UK that all is not quite so well as they thought then out comes a report that says millions of people are less than a month away from having to survive on benefits, or help from friends and family in the event of “a sudden loss of income”.

Despite the average household thinking they could last 77 days  in reality the average household is just 29 days away from this point, while others are much closer still, according to the Deadline to the Breadline report to be released this week.

The concerns expressed by many over the rising cost of living during the year ahead, as well as fears of falling wages, more than a third of households (36% ) have “no strategy in place to cope with financial hardship”, says the report from Legal & General which draws on analysis by the Centre for Economics and Business Research (CEBR) and a survey of almost 5,000 people in the UK.

Homeowners who have paid off their mortgage are in the best position, able to last for 426 days before exhausting their reserves. While those with a mortgage would have just 22 days before their money disappeared. And the typical household living in private rented accommodation is just two days away from the breadline, the report warns.

A 2% rise in interest rates would take the typical household with a mortgage one day closer to this point. Even a rise of just 1% would have an impact – meaning households would no longer be able to save each month and would have to change their spending habits, or rely on existing savings, to make ends meet.

Low interest rates combined with falling incomes in real terms have resulted in households saving £8.12 less per month on average in 2014 compared with last year. And more than a third (35%) of the population have not saved any money to protect them in the event of an unexpected shock to their income.

Britons facing an uncertain future

Britons facing an uncertain future

John Pollock, the chief executive of Legal & General Assurance Society warns

With new economic headwinds approaching and an interest-rate rise on the horizon, now is not the time to be burying our heads in the sand.

Talk of the economic recovery and an increase in consumer confidence could lead many people to revert back to their old habits when now really is the time to think about protecting their future.

Some of you may accuse me of scaremongering but this report is timely and a reminder, as I’ve said for a long time, that all is not so well with the UK at grass roots level and the negative impact of interest hikes can not be ruled out even if they are being pushed further down the road.

The Independent has more here

21 hours ago | November 23rd, 2014 12:12:13 GMT

Putin says Western sanctions, oil price and rouble fall will not cause “catastrophic consequences”

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  • a new “Iron Curtain” would harm Russia
  • Moscow will not seek to rebuild it and others will not be able to
  • Russia is not isolated over the crisis in Ukraine

Following on from foreign minister Lavrov’s accusation yesterday of the West seeking regime change in Moscow the president is also out on the front foot today in comments reported by Tass

We understand the fatality of an “Iron Curtain” for us

We will not go down this path in any case and no one will build a wall around us. That is impossible

It’s far from certain that sanctions, sharp falls in the oil price and the depreciation of the national currency will cause negative effects or catastrophic consequences only for us. No such thing will happen

Reuters has more here

Meanwhile in Germany the foreign minister Frank-Walter Steinmeier has told Der Spiegel magazine he has concerns that Russia is seeking to split up Ukraine by supporting separatists in the east and urged further dialogue with Putin’s government.

I’m taking Russia at its word that it doesn’t want to destroy the unity of Ukraine.

The reality, however, is speaking a different language.

As always with these posts I’m just reporting the news, so make sure you play nicely in that comments section!

Putin - A new Iron Curtain "is impossible"

Putin – Careful about pointing the finger of blame but says a new Iron Curtain “is impossible”

23 hours ago | November 23rd, 2014 09:29:29 GMT

ECB’s Constanzio – Europe not at risk of sliding into “full deflation” but inflation rate is dangerously low

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European Central Bank Vice President Vitor Constancio on Saturday during a debate in central Italy

Said he did not think “there is the risk of falling into full deflation” because nominal salaries would have to fall in all member countries “and this cannot happen”

Says the report … “It was not immediately clear what he meant by “full deflation” :-D

November 23rd, 2014 08:55:07 GMT

Italy is happy with its budget, and expects the EU will be, too

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Sandro Gozi, Italy’s top official on EU policy has said Italy does not expect any more requests from the European Commission to change its 2015 budget to meet European rules on debt reduction, after the budget was already tightened

  • “We expect the budget to be assessed without any requests for adjustment”

More at Reuters

Not that this sort of news will have much of an impact, I wouldn’t think. Then again, if the non-event comments from Dr. Draghi can kneecap the euro by 150 points …. maybe (Here is exactly what Draghi said)

November 23rd, 2014 08:48:47 GMT

Chinese Premier Li Keqiang: “Gentlemen, start your engines …”

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Growth engines, that is.

Xinhua reports that Chinese Premier Li Keqiang has called for “new growth engines” to counter slowing growth

(Of course, the rate cut should help:

A little more on Li comments at Reuters

li

November 22nd, 2014 21:33:08 GMT

What will be the best-performing currency this week?

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Last week, the overwhelming consensus voted for the US dollar and that was a good option as it was the second-best performer after the loonie.

What will be the top performing currency this week?
Euro
US dollar
Yen
Sterling
Australian dollar
Canadian dollar
New Zealand dollar

Your reasons are welcome in the comments.

November 22nd, 2014 20:19:43 GMT

Will immigration action from Obama affect inflation?

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Five million illegal immigrants in the United States may be temporarily shielded from immigration under the executive action announced by Obama on Friday.

What will it mean for wage inflation?

“Business owners who offer their wages good wages benefits see the competition exploit undocumented immigrants by paying them far less,” Obama said.

Five million people — many of them making less than minimum wage — will now be entitled to Social Security cards. On the face of it, that will boost income.

But the flip side is that those people will now be competing at the minimum wage end of the ladder so that could keep wages low there.

In addition, it’s likely that only a small portion of illegal immigrants will take advantage of the program so the net effect will be minimal.

Overall, I can’t see it being a factor.

Obama immigration

November 22nd, 2014 13:59:32 GMT

ICBC chief Jiang says Chinese rate cuts will erode bank profits

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Following on from Adam’s look behind yesterday rate cuts by the Peoples Bank of China we now have comments from the head of the world’s most profitable lender expressing concern as to their ultimate impact

The PBOC raised the cap on what banks can pay customers for deposits to 120% of the benchmark from 110%, as it announced a 0.4 percentage point reduction in the one-year lending rate and a 0.25 percentage point cut in the 12-month deposit rate. This will mean depositors’ returns will be unchanged if lenders raise rates to the new ceiling.

The central bank said in a statement yesterday that the increased premium banks are allowed to pay depositors is

another important measure in deposit rate liberalization

But at a forum today in Beijing Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., China’s biggest lender warned that  the move will

inevitably squeeze the profit margins of banks, and the narrower margin is a long-term trend

The erosion of profit margins will hurt banks’ ability to grow and capability to expand assets

Analysts have also expressed concerns, with Zhu Haibin, chief China economist at JPMorgan Chase & Co.HK saying

The asymmetric interest rate cut could put significant pressure on bank profitability.

This may raise the question whether banks will maintain the distribution of lending rates around the benchmark rates, or will choose to float up the range

Bloomberg reporting.

I’m all for trimming back bank profits but it seems that the knock-on effects of these PBOC measures may yet have consequences they weren’t hoping for.

PBOC measures will hit banks where it hurts

PBOC measures will hit banks where it hurts, but will they still boost growth?

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